8.31.2009

Forex Traders Anticipate Heavy News Week

The dollar was slightly more volatile over the past week than usual, and the explanations for this have been getting trickier by the day. As for this week, forex traders are advised to take positions on trades, as a string of data releases coming out of U.S., Europe and Japan are likely to affect the greenback's main currency crosses.



USD - Dollar Finishes a Volatile Week Ahead of the Non-Farm Payrolls

The Dollar underwent a volatile trading week against the major currencies. The EUR/USD was traded between the 1.4200 and 1.4400 levels without showing a clear direction. The Dollar continued the rising trend against the Pound, yet saw bearish activity against the Yen.

The greenback's unstable trading week took place largely due to the mixed results published from the U.S economy. While the Consumer Confidence report showed a surprising improvement in consumers' confidence regarding their financial outlook. Also, the housing sector continues to show signs of recovery as 433,000 New Home Sales were sold during July, marking a 9-month record. The Preliminary Gross Domestic Product (GDP) dropped by 1.0% in the second quarter of the year, showing that the American economy continues to contract, despite some optimistic reports.

In addition, the weekly Unemployment Claims report showed that 570,000 individuals have filed for unemployment insurance for the first time during the past week, questioning that the employment conditions in the U.S have entered a recovery process.

Looking ahead to this week, many impacting data is expected from the U.S economy, and above all the Non-Farm Employment Change report which is expected on Friday. The main publications for this week will include the Pending Home Sales on Tuesday. A positive result could strengthen the notion that the housing sector is recovering, which could boost the Dollar. The Manufacturing Purchasing Managers' Index on Tuesday is also likely to create strong volatility in the market. Yet the Non-Farm Payrolls on Friday is likely to affect the Dollar the most. Traders are also advised to follow the ADP forecast on Wednesday, as its results have proven to impact the Dollar in the short-term.

EUR - EUR Recovers before the Weekend on Positive German Data

Last week, the Euro saw volatile activity against the major currencies. The EUR first dropped against the Dollar, just to rise back up. The EUR saw a strong bullish trend against the Pound, as the EUR/GBP pair rose over the 0.8820 level. However, the Euro dropped almost 400 pips against the Yen.

The EUR began last week's trading with falling trends largely due to the positive economic data published from the U.S economy. However, as the week proceeded, a batch of positive economic data saw light from the Euro-Zone as well, jumping the Euro back up. The German Business Climate report saw an 11-month high, proving that businesses in Germany feel the economy is on the right track to recover from the global crisis.

Also last week, the German Consumer Climate index rose by 3.7 points, marking a 15-month record, supporting the sentiment that the German economy could be the first leading economy to pull out of recession. Considering that Germany holds the largest and strongest economy in the Euro-Zone, a continuation of such data is likely to strengthen the Euro against the major currencies.

As for this week, many interesting publications are expected from the Euro-Zone. The German Retails Sales is scheduled on Tuesday 06:00 GMT. This report measures the total value of inflation-adjusted sales at the retail level, and is considered to be a reliable indication for an economy's health. A positive data is likely to boost the Euro. Another publication that traders are advised to focus on is the Revised Gross Domestic Product (GDP) expected on Wednesday. Current expectations are that the European GDP has dropped by 0.1% during the second quarter of the year. However, a surprising result is likely to affect the Euro, and traders should be prepared.

JPY - Japanese Elections Support Yen Towards 7-Week High against USD

Last week, traders that went long on the Yen saw nice profits. The Yen rose close to 300 pips against the Dollar, sending the USD/JPY towards the 92.50 level. The JPY also rose against the Euro, and marked over 600 pips rise against the Pound.

It seems that the Yen was boosted last week much due to the end of election uncertainty following a win for the opposition Democratic Party of Japan. The elections' end even supported the Yen up to a seven week high against the Dollar. Another reason for the Yen's appreciation last week is the trade balance report which was published on Tuesday. This report measured the difference in value between imported and exported goods during July, and delivered a 0.19T figure. This means that the Bank of Japan (BoJ) is succeeding in its target to recover the Japanese economy with strong exporting activity. The BoJ keeps its low interest rates mainly for this purpose, and it seems that as long as Japanese exports will continue to expand, the Yen is likely to rise further and further.

As for the week ahead, a batch of data is expected from the Japanese economy. Traders are advised to focus on the monetary Base and the Capital Spending reports, as they are likely to create large volatility in the market. The Capital Spending report measures the total value of new capital expenditures made by businesses, and thus tends to have a large impact on the Yen.

Crude Oil - Crude Oil Recovers to $73 a Barrel

After starting last week with sharp losses, Crude Oil managed to recover and to resume towards $73 a barrel. Two main reasons led to Crude Oil's recovery since mid-week. First, optimistic data from Germany and the U.S have increased speculations that demand for energy will rise. A very relieving assumption is that as the global economies' condition will improve, demand for oil will rise in accordance. The other reason was the drop of the Dollar against the Euro and the Yen. As a commodity, Crude Oil is traded in Dollars, and thus a drop of the Dollar usually leads to a rising trend for oil, and vice versa.

As for the week ahead, traders are advised to follow the leading publications from the major economies, as they are likely to dominate Crude Oil's value. Traders should also bear in mind that positive data from the major economies is likely to create speculations regarding energy demand which tends to boost crude oil. In addition, the Crude Oil Inventories report is scheduled for Wednesday. This report is also likely to have a large impact on crude oil's value and traders should follow its outcomes.

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What is Forex?

If you would go out on a dinner with your friends or family and you mentioned that you were trading on the Forex market most of them wouldn’t know what you were talking about. The worst thing is that most of the Forex traders that join the Forex market don’t know what they are doing. Understanding what Forex is, is the first good step to your success at Forex trading.


The foreign exchange market (Currency, Forex, or FX) is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. Forex transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when world over countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.

Today, the Forex market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney's annual Forex Poll, volumes grew a further 41% between 2007 and 2008.

Forex Turnover

Forex Turnover
Main foreign exchange market turnover, 1988 - 2007, measured in billions of USD.
The purpose of Forex market is to facilitate trade and investment. The need for a foreign exchange market arises because of the presence of multifarious international currencies such as US Dollar, Pound Sterling, Yen, etc., and the need for trading in such currencies. Since you aren’t buying anything physical this kind of trading can be confusing. When buying a currency think of it as buying a part in that particular country’s economy because the currency rate reflects the economical situation of the country when compared to others.

Currencies

Currencies
List of most popular currencies on the Forex market

Forex used to be a closed market because only the “big boys” because you needed between 10 and 50 million $ to open an account. But today, with the development of internet, online Forex brokers have the possibility to offer their services to “little” traders. All you need to start is a computer, fast internet connection and information which you can find on this page also.

This enormous market is like the dangerous sea where you can meet lots of sharks and dangerous waters but at the same time it is the only one where two weeks of trading can hypothetically bring you $1,000,000 out of $1,000 of initial investment.

This is certainly hypothetically because a lot of newbie traders deal with their trades as gambling, that surely bring them to having nothing in the end. You should always keep the phrase "be careful!" in your mind. This market would give you its profit possibilities only if you learn the basic things hard and make lots of demo trading.

The statistics is that as much as 95% of traders come to losing their money at Forex, 5% have profit and less than 1% of traders make large fortune at Forex. You shouldn't produce, sell or advertise anything trading at Forex. Your assets are your knowledge, experience and a small amount of cash.

This market is a platform for banks, transnational corporations and individual traders to change the currencies they possess into other ones. This is the spot Forex market. At this market you can trade with up to 1:400 leverage which means that you'll get $400 on your account for each dollar invested. So, you can trade with the $400,000 sum having invested $1,000 onto your account.

Forex is unique among other world markets because in any time of day and night, somewhere in the world, a financial centre is open for business, banks and corporations exchange currency all the time, with a little lower frequency during the weekend.

Why to trade on Forex?

1. There is no commission fee for trading at Forex.
2. There is no intermediary, you can trade directly at Forex.
3. Forex is open 24-hours a day.
4. Nobody can influence the market for a longer period.
5. High liquidity.
6. Free demo accounts, analysis and charts.
7. Small accounts that allow everyone to try out his luck.

Hope this has answered a lot of questions you were asking yourself about Forex and that you can now start trading. Also make sure that you check out other articles on this blog which can help you earn your fortune.

Good luck to everyone!